Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

When limited assets are required to fullfill the delivery of a particular service, ownership of those assets is key.

Companies with well-located landfill assets represent a significant competitive advantage and barrier to entry in the waste management market because it is unlikely that enough new landfill locations will get government approval to diminish its share of this business.

Wednesday, 30 December 2015

With term insurance all you pay for and get is protection. If you die, they pay.

Term insurance rates start very low but go up every year.

Whole life insurance:

With whole life you are buying a tax-sheltered savings plan as well. Your policy accumulates "cash values."

Whole life rates start high but remain constant.

Insurance salesmen are eager to sell whole-life policies because their commissions are so much higher.

But you would be wiser to buy renewable term insurance and do your saving separately. (With renewable policy you are assured of continuing coverage even if your health deteriorates.)

The problems with whole life:

Many policies pay low interest.

It is impossible for a non-expert to tell a good policy from a bad one.

There is tremendous penalty for dropping the policy, as many people do, after just a few years.

Most young families cannot afford the protection they need if they buy whole life. The same dollars will buy five or six times term insurance.

In later years, and particularly beyond the age of 50 or 55, term insurance premiums rise rapidly. But by then you may have a less urgent need for life insurance. The kids may be grown, the mortgage paid off, the pension benefits vested. You will still need to build substantial assets for retirement, and to protect your spouse; but there are better ways to save for old age than whole life.

Tuesday, 29 December 2015

Some industries lend themselves to the creation of economic moats more so than others.

These are the industries where you will want ot spend most of your time.

The economics of some industries are superior to others.

You should spend more time learning about attractive industries than unattractive ones.

Every industry has its own unique dynamics and set of jargon.

Some industries (such as financial services ) even have financial statements that look very different from others.

Wade through the different economics of each industry and understand how companies in each industry can create economic moats - which strategies work and how you can identify companies pursuing those strategies.

Here are some areas of the market that are definitely worth more of your time exploring.

Banks and Financial Services

Business Services

Health Care

Media

These are not the four areas of the market with worthwhile investments.

They are highlighted because they contain so many wide-moat companies.

There are great firms in even the least likely areas of the stock market.

The goal is to help answer a few essential questions:

How do companies in this industry make money?

How can they create economic moats:

What quirks does this industry have that an investor should know about?

How can you separate successful from unsuccessful firms in each industry?

What pitfalls should you watch out for?

Over the long haul, a big part of successful investing is building a mental database of companies and industries on which you can draw as the need arises.

As long as excess productive capacity exits, prices tend to reflect direct operating costs rather than capital employed. (Buffett)

This means that the prices of finished goods are lower than the full production cost, which should include amortization.

The capital employed not only does not earn a return, but also does not reinstate itself.

After Berkshire Hathaway's textile business closed in 1985, Buffett commented that over the years, there had always been the possibility of making a large capital investment in the textile business that would have resulted in a reduction of variable costs.

Those investment opportunities, if viewed throught the prism of standard return on investment tests, would have brought greater economic gains than if similar investments had been made in other Berkshire businesses (candy and newspapers).

However, the potential benefits from investing in the textile industry were imaginary.

Berkshire's competitors were implementing the same types of capital expenditures, and once a certain proportion of the industry participants had made these investments, the reduced cost base in the industry would have resulted in a reduction in prices.Considered individually, each company's investments appears to be justified, but viewed collectively, these decisions affected every company and did not benefit the individual players ("just as happens when each person watching a parade decides he can see a little better if he stands on tiptoes").

After each cycle of capital investment, all the companies had more money tied up in the bsiness, but their returns did not improve.

As Buffett's parade revelers rising on tiptoes demonstrate, the managerial decisions of individual participants in uniform industries are intertwined.

Poor judgment by a single manager may lead to future losses for all involved.

"In a business selling a commodity-type product, it is impossible to be a lot smarter than your dumbest competitor." (Buffett)

If your competitors set prices at a level that is lower than your production costs, then you also must set prices at that level and suffer the losses if you are to remain in business."The trick is to have no competitors. That means having something that distinguishes itself." (Buffett)

While the degree to which it is possible to introduce product differentiation within an industry may change because of technology developments or the evolution of consumer preferences, in many industries differentiation among products may be simply impossible to implement.

A few producers in such industries may consistently do well if they have a wide sustainable cost advantage, but such exceptions are rare or, in many industries, nonexistent.

For the great majority of companies selling "commodity-type" products, persistent overcapacaity without regulated prices (or costs) results in poor profitability.

Overcapacity may eventually self-correct as capacity shrinks or demand expands, but such corrections are often long delyaed, and "when they finally occur, the rebound to prosperity frequently produces a pervasive enthusiasm for expansion that, within a few years, again creates ovecapacity and a new profitless environment." (Buffett)

1. While waiting for the market to fall, it is possible to miss out on growth in companies with good prospects (some ten-baggers made their biggest moves during bad markets).

2. Following the fashionable trend may lead to serious mistakes in the choice of investment targets.

The market is overvalued when there are no suitable investments at suitable prices.

There is no reason to worry about an overvalued market.

The way you will know when the market is overvalued is when you cannot find a single company that is reasonably priced or that meets your other criteria for investment. (Lynch and Rothchild, 2000)

Peter Lynch holds the same view as Buffett on market timing. Lynch doesn't believe in predicting markets, but believes in buying great companies - "especially companies that are undervalued, and/or under-appreciated."

"Things inside humans make them terrible stock market timers. The unwary investor continually passes in and out of three emotional states: concern, complacency, and capitulation."

Both investors prefer falling markets.

A good 300 point drop creates some bargains that are the "holy grail of the true stock picker."The loss of 10 to 30% of net worth in a market sell-off is of little importance.

Peter Lynch views a correction not as a disaster, but as an opportunity to add to a portfolio at low prices:

Monday, 21 December 2015

It was more years ago than I’d care to admit, but I vividly remember being 21 years of age.

Beneath a headstrong facade hid a perplexed kid, riddled with nerves about succeeding on the professional road that lay ahead. I concealed these feelings of uncertainty because I thought that’s what would impress an employer: an uber-confident young talent with an unmistakable hunger to get ahead. Surely they would respond well to someone who was outspoken, bold and unmistakably ambitious.

Upon entering the full-time workforce I applied this attitude in droves. While I thought I was doing the right thing, unbeknown to me I was damaging my reputation. It started to become apparent that my colleagues perceived me as somewhat arrogant, closed minded, and difficult to work with.

My career advancement was limping rather than sprinting. I’d watch peers receive promotions while I hovered in the same position, brimming with resentment.

Rationalising it was just a simple case of not finding the right job, an environment that would finally let me shine, I propelled myself down a path of short-term stints in various organisations, becoming increasingly disillusioned every time I job-hopped; where was this professional utopia? It took me a few years to realise that utopia doesn’t exist. It wasn’t the particular organisation, culture or people that were clamping my progress; it was my misguided attitude. My professional disappointments were no one else’s fault but my own. Coming to terms with that wasn’t easy, but ultimately, and thankfully, I did.

Today, I am a CEO. My many missteps as a young professional are a chief reason why I spend a significant amount of my time mentoring young people throughout Australia and abroad. I want to help them avoid making the same mistakes that I did.

During these mentoring sessions I am always reminded of my fledgling missteps, and what I wish I’d known as a young professional. If I were to have a mentoring session with my 21 year old self, here’s what I would I tell that bull-headed young person:

KNOW YOUR IMPACT

Self-awareness in business is paramount. Not identifying or understanding the impact your behaviour has on others is a professional pitfall and will limit your progress. Observe how people respond to you. What is their body language like when you speak or enter a room? If it’s noticeably negative, is there anything you should be doing differently?

This is not about changing who you are as a person: it’s about finding better ways to relate and work with your colleagues. Taking the time to listen, observe, see things from someone else’s point of view is essential to knowing your impact and building solid relationships.

FOCUS ON THE MOMENT

Ambition is great. Blind ambition is not. Constantly focusing on reaching the next level of your career will detract from your responsibilities and relationships at hand. One of the biggest annoyances for any manager is an employee who expects more responsibility before they’ve mastered in their current role. Master your current role and you will be invited to the next level much quicker.

BE GRACIOUS IN DEFEAT

When people are promoted ahead of you don’t let it unsettle you. Jealousy is never, ever, a good look. Believe me, managers are always observing how their employees respond to unfavourable situations. Remaining positive in these situations, using them as motivation to work harder, will be recognised and respected by your superiors.

YOU’RE NOT KIDDING ANYONE

Employers know you’re inexperienced. They know you’re likely anxious about your first foray into professional life. And they know that you want to impress. Their expectations of you won’t be that high for those very reasons, so avoid trying to look like you know all the answers, because they know you don’t.

The first job is about listening, observing and fulfilling requests to the best of your ability. You’re laying the foundation for bigger things — don’t be impatient.

Don’t forget:

- Understand the impact your behaviour has on others and respond accordingly.

- Focus on doing your current role well and your manager will take notice.

- Don’t be jealous when a colleague is promoted ahead of you, rather use it as motivation to work harder and improve.

Saturday, 19 December 2015

The hardest thing to learn is not the complicated technical analysis formulas that one can be found in textbooks. It is the empirical formula called patience. It is the key to successful stock market investment. Without it even one has the sharpest mind of great stock pick will not yield desirable and consistent results.

I have read countless great textbooks, technical and non-technical, throughout my investing life and in the end, I came to realise that the very one thing that many people lack of in stock investment is patience. It took me years to understand and appreciate this. That is why i always stressed one must have patience, persevere, trust and conviction in stock investment. Yes. Each of this word is about human behaviour. Master it and only then talk about fundamental analysis, technical analysis, stock pick and timing. Case in point, how many would have patiently hold on to Presbhd long enough to achieve extreme profit from it ? It doesn't matter if you have held onto a stock for very long time despite making less paper profit, but the patience that you have developed subconsciously within you to keep that stock is already a good start.

By the way, the worst enemy of patience is distraction. Think about it.

Friday, 18 December 2015

Buffett: "I have learned mainly by reading myself. So I don’t think I have any original ideas. Certainly, I talk about reading Graham. I’ve read Phil Fisher. So I’ve gotten a lot of my ideas from reading. You can learn a lot from other people. In fact, I think if you learn basically from other people, you don’t have to get too many new ideas on your own. You can just apply the best of what you see.”

"ORIGINALITY is overrated. I believe in the discipline of mastering the best that other people have figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart." Charlie Munger

"What’s really astounding, is how resistant some people are to learning anything … even when it’s in their self-interest to learn. There is just an incredible resistance to thinking or changing. Bertrand Russell once said: ‘Most men would rather die than think. Many have.’ And in a financial sense, that’s very true." Warren Buffett.

IBM historically has made a broad range of computers, mainframes, and network servers.

But the company has morphed over the years into a software and services company.

As a consequence, fewer folks than ever talk about an "IBM computer" anymore; they talk about an "IBM business solution" or some such.

IBM is divided into four principal business units and a financing unit:

The Global Technology Services unit: This is the largest, at 38% of revenues.

The Global Business Services unit (18%)

The Software unit (32%).

The Systems and Technology group (10%)

The Financing Unit (2%) helps the company market it all.

Overseas sales make up about 55% of revenues.

The company has kept "strategic" large systems but little else; it is now offering cloud-based and integrated hardware/software/service solutions for diverse needs such as business analytics and data security.

Becton Dickinson is one of the premier medical supply and technology companies on the planet.

Becton Dickinson is a global health care company . The company develops, manufactures, and sells medical supplies, devices, laboratory instruments, antibodies, reagents, and diagnostic products through its three segments:

In mid-2014, the company announced the acquisition of CareFusion, a global provider of automated tools and systems designed to reduce patient medication errors and to prevent care-associated infections.

With the acquisition, while accretive, CareFusion may appear to dilute BD;s strong profit margins (NPM for BD is about 15% while CareFusion is about 11%), but it is anticipated synergies and growth to be a net positive.

Its dividend increases are not only steady but large, typically 10% per year, and the company plans to continue that pattern. Dividend raises, last 10 years: 10 times.

Something else better for timeliness or fit with today's go-forward worldview; a megatrend.

What is that something else?

It can be:

- another stock
- an index fund
- a house
- or any kind of investment

It can also be cash.

Sell that stock when .... when what? When cash is a better investment. Or when you need the money, which is another way of saying that cash is a better investment - at least it is safer for the time being.

Best possible deployment of your capital

If you think of a buy decision as a best possible deployment of capital because there is no better way to invest your money, you will also come out ahead.

It really is not hard, especially if you have done your homework.

And it is also made easier if you avoid rash overcommitments; that is, you avoid buying all at once in case you have made a mistake or in case better prices come later down the road.

Buy and hold quality companies for the long haul, and you will likely be handsomely rewarded for that patience.

Monday, 14 December 2015

Charlie Munger settled into his seat in front of the crowd at the University of Southern California.

It was 1994 and Munger had spent the last 20 years working alongside Warren Buffett as the two men grew Berkshire Hathaway into a billion-dollar corporation.

Today, Munger was delivering a talk to the USC Business School entitled, “A Lesson on Elementary Worldly Wisdom.”

About halfway through his presentation, hidden among many fantastic lessons, Munger discussed a strategy that Warren Buffett had used with great success throughout his career.

Here it is:

When Warren lectures at business schools, he says, “I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches — representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all.”

He says, “Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.”

Again, this is a concept that seems perfectly obvious to me. And to Warren it seems perfectly obvious. But this is one of the very few business classes in the U.S. where anybody will be saying so. It just isn’t the conventional wisdom.

To me, it’s obvious that the winner has to bet very selectively. It’s been obvious to me since very early in life. I don’t know why it’s not obvious to very many other people.

The Underrated Importance of Selective Focus

Warren Buffett’s “20-Slot” Rule isn’t just useful for financial investments, it’s a sound approach for time investments as well. In particular, what struck me about Buffett’s strategy was his idea of “forcing yourself to load up” and go all in on an investment.

The key point is this:

Your odds of success improve when you are forced to direct all of your energy and attention to fewer tasks.

If you want to master a skill — truly master it — you have to be selective with your time. You have to ruthlessly trim away good ideas to make room for great ones. You have to focus on a few essential tasks and ignore the distractions. You have to commit to working through 10 years of silence.

Going All In

If you take a look around, you’ll notice very few people actually go “all in” on a single skill or goal for an extended period of time.

Rather than researching carefully and pouring themselves into a goal for a year or two, most people “dip their toes in the water” and chase a new diet, a new college major, a new exercise routine, a new side business idea, or a new career path for a few weeks or months before jumping onto the next new thing.

In my experience, so few people display the persistence to practice one thing for an extended period of time that you can actually become very good in many areas — maybe even world-class — with just one year of focused work. If you view your life as a 20-slot punchcard and each slot is a period of focused work for a year or two, then you can see how you can enjoy significant returns on your invested time simply by going all in on a few things.

My point here is that everyone is holding a “life punchcard” and, if we are considering how many things we can master in a lifetime, there aren’t many slots on that card. You only get so many punches during your time on this little planet. Unlike financial investments, your 20 “life slots” are going to get punched whether you like it or not. The time will pass either way.Don’t waste your next slot. Think carefully, make a decision, and go all in. Don’t just kind of go for it. Go all in. Your final results are merely a reflection of your prior commitment.

In the summer of 2012, the British government informed Virgin Trains that it had lost the bid to retain the operating rights to the UK’s West Coast rail franchise. Virgin Trains had been running the £7 billion ($10.9 billion) franchise for 15 years, expanding the line and growing its annual passenger numbers from 13 million to 30 million.

Richard Branson, chairman of Virgin Train’s parent company the Virgin Group, writes in his book “The Virgin Way” that he was “stunned and baffled” that he could have lost the bid to the company FirstGroup.

He decided to stay quiet for awhile, meeting with lawyers and advisors to see if Virgin had actually been beaten fairly. Everyone he spoke with seemed to conclude that FirstGroup’s numbers were unsustainable, meaning the British government had made a mistake in calculations. Regardless, many of his senior team told Branson that he’d only be wasting his time and hurting his image with a lawsuit. But, after carefully weighing the facts, he decided to move forward with it.

A week before he was scheduled to meet the Department for Transport in the UK’s high court, Branson got a phone call from the department’s secretary. The secretary told him that on further review, the department had indeed made grave miscalculations and Virgin had offered the better deal.

Branson considers his decision to sue the government, which ultimately saved his rail business, to be one of the best high-stakes decisions he’s ever made. In his book he highlights four rules that he’s used to make tough decisions like this one throughout his business career, and we’ve described them below.

1. Don’t act on an emotional response.

Branson says he was flabbergasted when he first heard that the Virgin Trains deal had not gone through, but he was experienced enough to know that he should take some time to settle down and collect data instead of letting his feelings take control of him.

Had he made a statement to the press out of frustration or demanded to sue the British government solely out of instinct rather than fact, he would have increased the likelihood of having his case dismissed and appearing reckless.

It’s just as bad to act on a positive emotion, he says. Give decisions you’re considering enough time to lose the influence of your first impressions.

2. Find as many downsides to an idea as possible.

Branson carefully considers everything that could go wrong before he goes forward with a decision.

Regarding the rail case, Branson’s lawyers initially told him he had a 10% chance of winning a case against the government. But after collecting proof that some numbers in his competitor’s deals were off, he was convinced he had truth and customer support on his side.

“Nothing is perfect, so work hard at uncovering whatever hidden warts the thing might have and by removing them you’ll only make it better still,” he writes.

3. Look at the big picture.

Before he makes a decision, Branson takes a look at how it will affect his other projects in both the short and long term.

“This one may be a ‘too good to miss’ opportunity but how will it affect other projects or priorities and, if now is not the best time to do it, what risks if any are there in putting the thing on hold for an agreed period of time?” he writes. “If you cannot manage this project in addition to another that’s waiting in the wings, which one gets the nod and why?”

Branson’s latest project is Virgin Hotels, which he hopes will take advantage of a booming American hotel market.

With every project he undertakes and manages, he considers how the Virgin brand and his own name will be represented.4. Protect the downside.

In a LinkedIn blog post from 2014, Branson writes that the best lesson his father ever taught him was to protect the downside; that is, limit possible losses before moving forward with a new business venture.

Branson’s father told him that he would allow him, at age 15, to leave high school and start Student magazine only if he sold £4,000 worth of advertising to cover printing and paper costs.

It’s a strategy he repeated in 1984 when he made a huge leap from the music business into the airline business with Virgin Atlantic. He was only able to convince his business partners at Virgin Records to agree to the deal after he got Boeing to agree to take back Virgin’s one 747 jet after a year if the business wasn’t operating as planned.

These four simple guidelines can become habit, whether you’re about to approach a prospective client or sue the British government.

Thursday, 10 December 2015

"We've seen oil magnates, real estate moguls, shippers and robber barons at the top of the money heap, but Buffett is the first person to get there by picking stocks" [Rothchild, 1995]

1982 Buffett first appeared on the first Forbes list

1992 Reached top position in 1993 with a fortune of $8.2 billion.

2001-2007 Buffett was in second place (after Bill Gates).

2008 Buffett was again in first place with a fortune of $62 billion.

2010-2012 Buffett remained in third place (by that time he ha transferred some of his fortune to a charitable fund)

2013 He was in fourth place.

"Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with management of the highest integrity and ability. Then you own those shares forever". [Buffett]

The data on Buffett's results are reliable and his performance is very well documented.

"Is this a result of Buffett's application of his methodology, or did it happen by chance?"
"Is it possible to replicate this achievement?"
"What is required for replication?"

The question of whether financial success is achieved by chance or through application of a methodology is the central point of discussion on the rationality and efficiency of financial markets.

Buffett would not have achieved his results without the "right" investment process and without his unique abilities as a business analyst. But icebergs always have much larger submerged parts. The true "secrets" may hide there. Supporting the investment process that he developed is the intellectual foundation (intellectual core) beneath his accomplishment.

Sunday, 6 December 2015

Accept all investments with Rates of Return greater than their Opportunity Costs of Capital

@ time 39.00

An example:

You are considering an investment opportunity that costs $100,000 and promises to return 10%.A comparable investment in the financial market returns 15%.A bank offers to lend you $100,000 at 8% with no conditions.Questions:

1. Do you invest $100,000 in the investment opportunity?

Answer: NO

2. What is the investment's cost of capital?

Answer: 15%.

Reasons:

You should invest the $100,000 in the financial market that returns 15%.

The financial market provides the investing return standards against which other investments are evaluated.

Financing by the bank loan at 8% was irrelevant to the investment decision.

The investment decision and the financing decision are separate and independent decisions.

After you have made the investment decision, thus:

You are considering an investment opportunity that costs $100,000 and promises to return 10%.A comparable investment in the financial market returns 15%.

Wednesday, 2 December 2015

Risk refers to the likelihood that your assets will decrease in value.

Risk is unique in that it applies to the probability of losses occurring, and the potential value of those losses.

In finance, risk is considered a type of cost.

All decisions you make have some degree of inherent risk.

Inaction too often has the greatest amount of risk, so rather than becoming paralysed by attempting to avoid all risk, look at it as a type of cost that allows you to calculate whether a financial decision will reap greater benefits that the potential losses and to compare the available options.

There are a variety of different ways to:

avoid risk,

reduce risk, or

even share risk.

Each of the above has a price.

By calculating the cost-value of specific risks, it becomes possible to determine whether any of the tools available for managing risk are financially viable and are themselves an appropriate risk.

Risk management is a critical part of financial success.

You should explore:

the different types of financial risk,

the ways in which risk is measured and

how to effectively manage the amount of risk to which you are exposed.

Additional notes

Ways to avoid risk: diversification and appropriate use of derivatives

Ways to share risk: insurance

In the end, the best tool you have available to you in limiting the costs associated with risk is simple due diligence.

Do your research, make decisions which make sense to you and keep watching so you know when that decision doesn't make sense anymore.

If someone's credibility is in question, risk mitigation can come in forms as simple as asking for a nonrefundable down-payment, just as banks will sometimes ask for collateral before issuing loans.

Preparing for losses can be as simple as keeping enough funds available in a liquid form so you can pay your bills until you regain your losses.

The duration of your exposure to losses can be shortened by ensuring you always have an exit strategy - before you commit to a decision, develop a way to undo it in a worst-case scenario.

Like most things, you get out of risk management that you put into it, and as the amount of potential risk increases, so should your intolerance for sloppy risk management.

But there is absolutely no reason to think that accepting risk inherently generates financial returns.

The reality is the opposite: all other things being equal, higher risk causes you lower financial gain, since the costs you incur as a result of the elevated risk corrode the value of your assets.

All other things being equal between two distinct investment options, if one option has greater risk, then the organisation selling that investment must offer a higher rate of return in order to attract investors.

It is not that the higher risk causes higher returns - it is that investors demand higher returns in order to accept the higher risk.

Various models are used to understand the relationship between risk and returns:

Value of an Asset

From The Essays of Warren Buffett: “In Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows—discounted at an appropriate interest rate—that can be expected to occur during the lifetime of the asset.”

Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.

Always buy a lot when the price is low.

Never buy when the stock is overpriced.

It is alright to buy when the selected stock is at a fair price.

Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.

Do not time the market for such or any stocks.

By keeping to the above strategy, the returns will be delivered through the growth of the company's business.

So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.

The downside risk is protected through only buying when the price is low or fairly priced.

Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.

Sell urgently when the company business fundamental has deteriorated irreversibly.

You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.

In conclusion, a critical key to successful investing is in your stock picking ability.

My Philosophy and Strategy

DOCUMENTRY- WARREN BUFFETT THE WORLDS GREATEST MONEY MAKER

Peter Lynch

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.2. Never invest in any idea you can’t illustrate with a crayon.3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.5. Time is on your side when you own shares of superior companies.6. Owning stock is like having children. Don’t get involved with more than you can handle.7. When the insiders are buying, it’s a good sign.8. Unless you’re a short seller, it never pays to be pessimistic.9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Think of your physical, mental and social well-being. Money may not buy happiness.

What is Risk?

The major RISK facing you is the possibility of not reaching your long-term investment goal through the growth of your funds in real terms. And the greatest enemy of reaching those goals is INFLATION. Nothing is safe from inflation. Short-term price volatility is NOT risk for investors who have time horizons 5, 10, 15 or 30 years away. Volatility is the friend of the long term investor. The most important friends of your investment goal are COMPOUNDING and TIME.

Life Cycle of A Successful Company

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:- fixed assets such as equipment, property, or industrial buildings- fixing problems with an asset- preparing an asset to be used in business- restoring property- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

The best stock investment strategy

Keep it simple. Keep it safe (make money with less risk taking). You don't need to pick the best stock or even the best stock funds to do well, if you have an investment strategy that keeps you out of trouble.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

Visualization Video for a New Life

All equity security investments present a risk of loss of capital

Investment performance is not guaranteed and future returns may differ from past returns. As investment conditions change over time, past returns should not be used to predict future returns. The results of your investing will be affected by a number of factors, including the performance of the investment markets in which you invest.

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.• A balance sheet with less debt than other companies in its particular industry.• A P/E ratio no higher than average.• A dividend yield that suits your particular needs.• A below-average dividend pay-out ratio.• A history of earnings and dividends not pockmarked by erratic ups and downs.• Companies whose ROE is 15 or better.• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Benjamin Graham

"To achieve satisfactory investment results is easier than most people realise; to achieve superior results is harder than it looks."

Sell the losers, let the winners run.

Losers refer NOT to those stocks with the depressed prices but to those whose revenues and earnings aren't capable of growing adequately. Weed out these losers and reinvest the cash into other stocks with better revenues and earnings potential for higher returns.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments.If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

Market Fluctuations of Investor's Portfolio

Note carefully what Graham is saying here. It is not just possible, but probable, that most of the stocks you own will gain at least 50% from their lowest price and lose at least 33%("equivalent one-third") from their highest price -regardless of which stocks you own or whether the market as a whole goes up or down.If you can't live with that - or you think your portfolio is somehow magically exempt from it - then you are not yet entitled to call yourself an investor.